Credit Scoring and Reporting
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Objectives:
What is Credit?
The word credit is derived from the Latin word for trust. Individuals or organizations will loan you money only if they trust you will pay it back. The better credit history you have, the lower the interest rate you will pay; this indicates that there is a high trust level associated with your financial behavior.
Not surprisingly, responsible financial behavior correlates with other responsible behavior. A good credit score can positively affect other seemingly unrelated situations, such as your car insurance or military security clearance.
Credit Reporting
The three major credit reporting agencies are Equifax, Experian, and TransUnion. Under federal law, you may order one free credit report from each of these agencies once a year.
Be aware of credit reporting agencies that advertise free credit reports. The website www.freecreditreport.com, for example, advertises a free credit report; however, once you sign up to receive your free report, they will automatically begin charging your credit card for their monthly service.
The best place to obtain your free credit report is www.annualcreditreport.com. This website is the only service authorized by Equifax, Experian, and TransUnion to provide individuals with a free credit report.
Why Should I Run My Credit Report?
Identify Incorrect Information
A survey conducted by the U.S. Public Interest Research Groups (2004) showed that 79% of credit reports surveyed contained serious errors or mistakes. Of those with errors, 25% “contained serious errors that could result in the denial of credit” (“Mistakes Do Happen: A Look at Errors in Consumer Credit Reports”). Find these errors early. You do not want to discover these errors the day before you plan to apply for a mortgage.
If you find errors on your report, you can dispute them online with each credit reporting agency. These may be simple factual errors, such as...